Yellow Corporation

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

Chapter 11

In re:

Case No. 23-11069 (CTG)

YELLOW CORPORATION, et al.,

(Jointly Administered)

Debtors.

Related Docket No. 4462

MEMORANDUM OPINION

After the enactment of the American Rescue Plan Act of 2021, the PBGC issued

a series of regulations that provided, in effect, that funds received by pension plans

under that Act would not be considered for the purpose of determining an employer’s

withdrawal liability.1 The debtors in this case withdrew from various pension plans

in the days leading up to the bankruptcy. Several pension plans that received funds

under American Rescue Plan Act filed proofs of claim for withdrawal liability. The

pension plans calculated the amounts due as provided in the PBGC regulations. They

therefore did not treat federal funds they received (or that they would receive) under

the Act as plan assets.

The debtors, joined by MFN Partners (which holds equity in the debtors),

objected to those proofs of claim.2 In connection with this claims allowance dispute,

they sought summary judgment, seeking a determination that the PBGC regulations

were invalid on the ground that they were inconsistent with the applicable statute.

The pension plans, joined by the PBGC, filed cross motions seeking summary

1 The Pension Benefit Guaranty Corporation is referred to as the “PBGC.”

2 MFN Partners, LP is referred to as “MFN Partners.”

judgment that the regulations were consistent with the statute. In a Memorandum

Opinion dated September 13, 2024, this Court held that the regulations were valid.3

MFN Partners and Mobile Street have moved for reconsideration.4 The

principal basis for the motion is that the Court erred in concluding that the PBGC

regulations are authorized by 29 U.S.C. § 1432(m), which authorizes the PBGC to

“impose, by regulation or other guidance, reasonable conditions on an eligible

multiemployer plan that receives special financial assistance relating to …

withdrawal liability.” The motion for reconsideration argues that the regulations in

question regulate employers rather than pension plans.

In the Summary Judgment Opinion, this Court relied on the Supreme Court’s

decision in Philpott, a case that none of the parties cited, for the proposition that an

authority to impose a “condition” on a party that accepts federal funds may also “bind

third parties, not just the party that agreed to the terms when it accepted the federal

funds.”5 The principal point of the rehearing petition is that Philpott is different

because it was about a statute enacted by Congress under its constitutional Spending

Clause authority, whereas this case involves an agency regulation. The rehearing

petition argues that the “Movants have located no case blessing a federal agency, as

3 D.I. 4326. The September 13, 2024 Memorandum Opinion is referred to as the “Summary

Judgment Opinion.”

4 D.I. 4462. Mobile Street Holdings, LLC is referred to as “Mobile Street.”

5 D.I. 4326 at 3. See also Philpott v. Essex County Welfare Board, 409 U.S. 413 (1973).

part of implementing its interpretation of a Congressional directive, to issue a

regulation adversely impacting third parties as is the undisputed case here.”6

The Court, however, has since come across further caselaw that it believes

supports its reading of the statute. Because that caselaw had not been cited by any

party, the Court issued “preliminary observations” explaining that it was inclined to

deny the motion for reconsideration, but affording the parties the opportunity to

address the caselaw on which the Court was inclined to rely.7 The parties have filed

briefs in response to those preliminary observations. Having reviewed the briefing,

the Court will deny the motion for reconsideration.

I. The Supreme Court’s decision in Philpott is analogous to the

circumstances presented here.

The rehearing petition argues that Philpott is different from this case for three

reasons. The first is that the condition in Philpott was statutory, whereas here the

condition is contained in an agency regulation. That is true. But the point of the

Court’s reliance on Philpott, however, is that it provided a very close analogy to the

question presented here. As the Summary Judgment Opinion explained, when

exercising its Spending Clause power, Congress may impose conditions on the receipt

of federal funds, and there is a body of caselaw addressing the kinds of “conditions”

that may validly be imposed.8 The American Rescue Plan Act similarly granted the

PBGC authority to impose conditions on pension plans that receive such funds. In

6 D.I. 4462 at 3.

7 D.I. 4718.

8 D.I. 4326 at 19 (citing South Dakota v. Dole, 483 U.S. 203, 206 (1987)).

construing the statutory language authorizing the PBGC to impose conditions on

pension plans that receive American Rescue Plan Act funds, it only makes sense to

draw upon the body of law that sets forth the kinds of conditions that Congress may

impose under the Spending Clause on the recipients of federal funds.

Second, the petition argues that in Philpott, the Social Security Act preceded

the relationship between the state and the individual who received the federal funds.

In this case, by contrast, the withdrawal liability calculation provisions of the

Multiemployer Pension Plan Amendments Act of 1980 had been in place long before

the enactment of the American Rescue Plan Act and the promulgation of the PBGC

regulations.

While that point about timing may be descriptively correct, it does not speak

to the validity of the regulation. There is no reason why a condition imposed on the

receipt of federal funds cannot alter parties’ existing expectations. So, while it may

be true that Philpott is different from this case in this respect, it is not a distinction

that makes a difference to the relevant analysis.

Third, the petition suggests that Philpott does not stand for the proposition

that the Social Security Act was a valid exercise of the Spending Clause power

because the Essex County Welfare Board did not expressly argue that the conditions

imposed on it were improper. But by the time of its Philpott decision, the Supreme

Court had long made clear that the Social Security Act was an exercise of Congress’

authority under the Spending Clause, which permitted it to condition the grant of

funds on the recipient’s agreement to comply with the terms of the grant.9 And it was

by then also well established that when Congress exercises its Spending Clause

power, it may do so in a way that is “not limited by the direct grants of legislative

power found in the Constitution.”10

Against that backdrop, the Supreme Court made clear in Philpott that the

Social Security Act “imposes a broad bar against the use of any legal process to reach

all social security benefits. That is broad enough to include all claimants, including

a State.”11 In this context, it necessarily follows that the Philpott Court decided, even

if implicitly, that a “condition” on the use of federal funds is not limited to the terms

to which the recipient of the federal funds agrees, but further extends to include

restrictions on third parties’ receipt of those funds. That implicit holding by the

Supreme Court is certainly binding on this Court.

II. Additional authority further supports the proposition that a

condition on the receipt of federal funds can bind third parties.

Following argument on the motion for reconsideration, this Court issued

preliminary observations in which it suggested that additional authority, including

the Supreme Court’s decision in Norfolk Southern Railway and the Sixth Circuit’s

decision in United States v. Miami University, support the Spending Clause analogy

9 See generally King v. Smith, 392 U.S. 309, 333 (1968); Charles C. Steward Mach. Co. v.

Davis, 301 U.S. 548, 589-590 (1937). See also Brief for State of New Jersey as Amicus Curiae

at 5, Philpott v. Essex County Welfare Board, 409 U.S. 413 (1973) (No. 71-5656), 1972 WL

135832 (describing how program at issue “provides assistance payments to needy disabled

persons out of monies appropriated by the federal government and the states which

participate”).

10 United States v. Butler, 297 U.S. 1, 66 (1936).

11 Philpott, 409 U.S. at 417.

on which the Court relied.12 The Court provided both parties the opportunity to

respond to those points.

The points made in MFN Holdings and Mobile Street’s response can be placed

into two categories. They first reiterate the contention set out above, that those cases

are different because they involve congressional legislation that imposed conditions

on the receipt of federal funds, rather than agency action. Again, it is true that in

this context the condition on the use of federal funds is set forth in the PBGC

regulations whereas the conditions at issue in United States v. Miami University and

Norfolk Southern were statutory. The Court nevertheless views this body of caselaw

to be highly relevant to the statutory question at issue here – what Congress would

have meant, in the American Rescue Plan Act, when it granted the PBGC the

authority to “impose, by regulation or other guidance, reasonable conditions on an

eligible multiemployer plan that receives special financial assistance relating to …

withdrawal liability.”13

Second, MFN Partners and Mobile Street make a series of additional points,

all of which are premised on the notion that the PBGC’s regulations are inconsistent

with other provisions of ERISA. To be sure, if that premise were correct, the rest of

their arguments would be valid ones. But for the reasons set forth in the Summary

Judgment Opinion and addressed further Part III, the regulations do not conflict with

other statutory language.

12 D.I. 4718 (citing Norfolk Southern Railway Co. v. Shanklin, 529 U.S. 344 (2000); United

States v. Miami Univ., 294 F.3d 797, 809 (6th Cir. 2002)).

13 29 U.S.C. § 1432(m)(1).

III. In view of the principle that the specific controls over the general, the

PBGC regulations do not conflict with the text of the statute.

Much of the rehearing petition and the response to the Court’s preliminary

observations is premised on the argument that the PBGC’s regulations improperly

“change” the statutorily required method for calculating withdrawal liability. As the

response to the Court’s preliminary observations puts the point, “the PBGC

Regulations necessarily change existing law that Congress itself did not change.”14

The Court addressed this basic point in the Summary Judgment Opinion. It

explained that 29 U.S.C. § 1432(l) calls for the segregation of special financial

assistance provided under the American Rescue Plan Act from “other plan assets.”

This, standing alone, would suggest that the special financial assistance is itself a

“plan asset” that ought to be included when calculating unfunded vested benefits.

The preceding sentence of § 1432(l), however, contains an unambiguous and specific

contrary instruction: “Special financial assistance received under this section and any

earnings thereon may be used by an eligible multiemployer plan to make benefit

payments and pay plan expenses.”15

If the net effect of a plan’s receipt of special financial assistance were to reduce

an employer’s withdrawal liability, this specific statutory command would be

violated. A stylized example may help illustrate the point. Consider a pension plan

14 D.I. 4758 at 2.

15 29 U.S.C. § 1432(l).

that held $200 in plan assets and owed $300 in nonforfeitable benefits.16 That plan’s

“unfunded vested benefits” would be $100. If an employer with a 50% allocable share

of those unfunded vested benefits withdrew from the plan, that employer’s

withdrawal liability (subject to specific adjustments as provided by statute) would be

$50. After the employer paid that withdrawal liability, the plan would have $250 in

plan assets. (Let’s call this result, Scenario A.)

Now consider the result if that plan were to receive $100 in special financial

assistance before the date on which withdrawal liability were calculated. If that $100

were to be treated as a plan asset, the employer would have $300 in plan assets and

$300 in nonforfeitable benefits, meaning that it would have no unfunded vested

benefits. The withdrawing employer, in turn, would be off the hook from its obligation

to pay $50 in withdrawal liability into the plan. (Let’s call this Scenario B.)

What is the net difference between Scenario A and Scenario B? In Scenario A,

the pension plan ends up with $250 in plan assets, whereas in Scenario B it has $300.

From the employer’s perspective, in Scenario A it owes $50 in withdrawal liability,

whereas in Scenario B it owes nothing.

Therefore, if the $100 in special financial assistance were treated as a plan

asset, the net result of the plan’s receipt of that $100 would be that the plan would

get $50 of that payment (increasing its assets from $250 to $300) and the employer

could keep the $50 that it would have otherwise owed to the plan. That state of

16 D.I. 4326 at 7 (citing 29 U.S.C. § 1381). See also Allied Painting & Decorating, Inc. v. Int’l

Painters & Allied Trades Indus. Pension Fund, No. 23-1537, 2024 WL 3366492, at *1 & n.1

(3d Cir. July 11, 2024).

affairs, in which $50 of the special financial assistance would reduce the employer’s

obligations to the plans, would violate Congress’ express instruction that special

financial assistance may only be used “to make benefit payments and pay plan

expenses.”17

To be sure, the $100 in special financial assistance would need to be

“segregated from other plan assets” and “invested by plans in investment-grade bonds

or other investments as permitted by the [PBGC].”18 But even so, it would blink

economic reality to suggest that $50 of the $100 in special financial assistance has

not been used to reduce the employer’s withdrawal liability.

The Supreme Court acknowledged this commonsense point when it upheld,

against constitutional challenge, a statute that prohibits the bribery of state and local

officials of entities that receive at least $10,000 in federal funds. The defendant

argued that to fall within the spending power, there needed to be a showing that the

federal funds themselves were tied in some way to the bribes received by the

government officials. The Supreme Court had none of that. “It is true … that not

every bribe or kickback … will be traceably skimmed from specific federal

payments.”19 The Court held, however, that “[m]oney is fungible,” and that

17 29 U.S.C. § 1432(l).

18 Id.

19 Sabri v. United States, 541 U.S. 600, 605-606 (2004).

“[l]iquidity is not a financial term for nothing.”20 Rather, “money can be drained off

here because a federal grant is pouring in there.”21

The PBGC regulations were motivated by the same economic reality. Reducing

the employer’s contribution by $50 as a result of the $100 in special financial

assistance is exactly what the Supreme Court meant in saying that “money can be

drained off here because a federal grant is pouring in there.”22 The PBGC regulations

at issue were thus necessary to give effect to the specific statutory requirement that

the special financial assistance not be used for any purpose other than to pay plan

benefits and expenses. For that reason, it is irrelevant that more general provisions

of the Multiemployer Pension Plan Amendments Act of 1980 might suggest that

anything of economic value owned by the pension plans should be treated as an asset

for the purpose of calculating withdrawal liability. This case is controlled by principle

set out in Brown & Williamson and other cases that explain that a specific statutory

provision must control over a more general one.23

For these reasons, the attempts by MFN Partners and Mobile Street to

distinguish Philpott, Norfolk Southern, and United States v. Miami University on the

ground that this case involves an agency regulation that conflicts with the statutory

text are unpersuasive. The Court accordingly adheres to the views set forth in its

20 Id. at 606.

21 Id.

22 Id.

23 Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 143 (2000).

preliminary observations, which are incorporated by reference. The motion for

reconsideration will therefore be denied.

The parties should settle an appropriate order reflecting the Court’s ruling on

the motions for summary judgment [D.I. 4326], including its decisions granting the

debtors’ motion for reconsideration [D.I. 4461] and denying this one [D.I. 4462].

Dated: November 12, 2024 i} Me

CRAIG T. GOLDBLATT

UNITED STATES BANKRUPTCY JUDGE

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